SaaS and Subscription Business Models

What are the different types of SaaS or subscription business models?

SaaS business modelsThere are two core Subscription Models applied in SaaS Subscription businesses - monthly and term.

Monthly Subscription Model

In the Monthly subscription model, the business or consumer is charged and pays each month, frequently via credit card of automatic e-payments. While there is typically an electronic license agreement, there is no term or the term is simply a month. Typically, the customer can cancel at any time without penalty or fee. While unusual, some monthly subscription businesses do offer quarterly and annual payments.

The payment method, frequency, and payment terms in themselves do not change the nature of the customer and vendor obligations if the model is a true monthly subscription. Under a monthly subscription model, an annual prepayment would typically be refunded if the customer cancels prior to the end of the period for which he prepaid. Monthly subscription models may include fixed or variable fees, or a combination.

Term Subscription Model

In the Term subscription model, the business or consumer executes an electronic or a paper contract agreeing to a subscription for a period of time. The subscription agreement may or may not include provisions for cancellation during the term. If included for other than for cancellation due to non-performance or uncured material default, cancellation provisions in a term agreement typically include pre-defined recovery charges or penalties.

With Term subscription agreements, payment terms are flexible, including monthly, quarterly, annually, or an agreed-to schedule or invoicing and payment terms. Again, how the customer pays and the frequency do not in themselves define the nature of the subscription.Freemium is often described as a model. Freemium as actually a sales and marketing strategy that can be employed in either the monthly or term subscription models.

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